Question : 17.2   Learning Objective 17-2 1) A method of dividing net income : 1171105

17.2   Learning Objective 17-2

1) A method of dividing net income or loss between the partners is known as a(n):

A) salary allowance.

B) interest allowance.

C) payroll allowance.

D) Both A and B are correct.

2) Which method of allocation of profits and losses is based on a percent of initial investment of the partners?

A) Salary allowance

B) Salary expense

C) Profit and loss ratio

D) Interest allowance

3) The agreed-upon ratio for dividing earnings or losses of a partnership is called:

A) interest allowance.

B) salary allowance.

C) profit and loss ratio.

D) profit and loss allowance.

4) Mary and Jeff entered into a partnership agreement. However, the agreement did not state how income and losses would be divided. The law states that income will be divided:

A) equally.

B) according to investments.

C) according to abilities.

D) None of these answers is correct.

5) Applying the interest allowance method, compute Julie and Jennifer’s share of net income if Julie invested $50,000 and Jennifer invested $35,000 at an 10% interest rate, with the remainder to be divided equally. Net income was $10,000.

A) Julie $5,000; Jennifer $3,500

B) Julie $5,750; Jennifer $4,250

C) Julie $5,640; Jennifer $4,360

D) None of these answers is correct.

6) What is the closing entry to allocate net income of $54,000 to Sara, Ellen, and Mary? Respective capital balances are $50,000, $80,000, and $20,000. No agreement was made for division of income.

A) Debit Income Summary $54,000; credit Sara, Capital $18,000; credit Ellen, Capital $18,000; credit Mary, Capital $18,000

B) Debit Income Summary $54,000; credit Sara, Capital $18,000; credit Ellen, Capital $28,800; credit Mary, Capital $7,200

C) Debit Salary Expense $54,000; credit Salaries Payable $54,000

D) Net income cannot be allocated.

7) What is the closing entry to allocate net income $30,000 to Eric, Von, and Derek? Their respective capital balances are $20,000, $40,000, and $60,000. Net income is shared in a ratio of their capital balances.

A) Debit Income Summary $30,000; credit Eric, Capital $5,000; credit Von, Capital 10,000; credit Derek, Capital $15,000

B) Debit Income Summary $30,000; credit Eric, Capital $10,000; credit Von, Capital $10,000; credit Derek, Capital $10,000

C) Debit Salary Expense $30,000; credit Salaries Payable $30,000

D) Net income cannot be allocated.

8) The journal entry to close a net income to the partners is to:

A) debit Income Summary; credit the capital accounts.

B) credit Income Summary; debit the capital accounts.

C) credit Net Loss; debit the capital accounts.

D) debit Net Loss; credit the capital accounts.

9) The average capital balances of partners Bridget and Emily are $5,000 and $15,000, respectively. Bridget and Emily work full time in the business. The business earned net income of $12,000 for the period. The partners have agreed to share earnings based upon the percentage of original investment. Bridget’s share of the net income is:

A) $4,000.

B) $6,000.

C) $3,000.

D) indeterminable.

10) The net income earned by the Cooper, Cross, and Crane partnership is $21,000. Their respective average capital balances are $20,000, $20,000, and $40,000. What is the closing entry to allocate the net income if no agreement was made for division of income?

A) Debit Income Summary $21,000; credit Cooper, Capital $7,000; credit Cross, Capital $7,000; credit Crane, Capital $7,000

B) Debit Income Summary $21,000; credit Cooper, Capital $5,250; credit Cross, Capital $5,250; credit Crane, Capital $10,500

C) Debit Cooper, Capital $7,000; debit Cross, Capital $7,000; debit Crane, Capital $7,000; credit Income Summary $21,000

D) Not enough information given to allocate